The U.S. Supreme Court has issued a landmark ruling, determining that tariffs imposed by the Trump administration under the International Emergency Economic Powers Act (IEEPA) were unconstitutional. This 6-3 decision, which notably included two of President Trump's appointees in the majority, affirms that the power to levy such taxes rests solely with Congress.
The ruling has opened the door for billions of dollars in refunds for businesses that paid these tariffs. In response, the administration swiftly announced new global tariffs at 10%, then 15%, utilizing a different legal authority: Section 122 of the Trade Act of 1974. This shift has initiated complex legal processes regarding refunds, sparked international reactions, and raised significant questions about future trade policy and presidential authority.
Background on Trump Administration Tariffs
The Trump administration initially implemented tariffs using the 1977 International Emergency Economic Powers Act (IEEPA). In February, the act was first invoked to impose tariffs on goods from China, Mexico, and Canada, citing drug trafficking as an emergency.
In April, the act was used again to levy tariffs ranging from 10% to 50% on goods from most countries globally. The administration cited the U.S. trade deficit as an "extraordinary and unusual threat." Tariffs on imports from Canada and Mexico were initially 25%, with Canada's rate later increasing to 35%. Tariffs on Chinese goods reached up to 145% at one point before decreasing.
These tariffs aimed to reduce the U.S. trade deficit and exert leverage in trade negotiations. Businesses in the U.S. and internationally reported significant costs and disruptions. For example, Learning Resources, a toy seller, anticipated $14 million in tariffs, and Cooperative Coffees, a coffee importer, reported paying $1.3 million. Reports indicated that businesses incurred operational disruptions, secured additional credit lines, increased prices, and relocated manufacturing.
Economists had warned that tariffs could lead to higher consumer prices and harm the economy. Three lower courts had previously ruled against the Trump administration on the IEEPA tariffs.
Supreme Court Case and Oral Arguments
The Supreme Court heard arguments on the legality of the tariffs, with the case challenging the President's authority to impose these levies. Opponents included small businesses, a group of states, and members of Congress from both parties. Over 200 Democrats and one Republican senator, Lisa Murkowski, submitted a brief arguing that IEEPA did not grant the President power to use tariffs as a bargaining tool.
Challengers argued that while IEEPA permits the President to regulate trade, it does not explicitly mention "tariffs." They contended that, under the U.S. Constitution, only Congress has the authority to establish taxes. They also disputed whether the issues cited by the White House, such as the trade deficit, qualified as emergencies under the act.
Justices Express Doubt
During the hearing, several justices expressed doubts about the White House's rationale.
Chief Justice John Roberts questioned the potential broad scope of presidential power, while Justice Neil Gorsuch raised concerns about the separation of powers.
Justice Sonia Sotomayor stated that tariffs are "exactly what" taxes are. Justice Amy Coney Barrett inquired about the broad application of the "reciprocal tariff policy." Conversely, Justice Brett Kavanaugh questioned the practicality of limiting presidential power.
Administration's Defense
The Trump administration, represented by Solicitor General John Sauer, argued that the power to regulate trade under IEEPA includes the authority to impose tariffs. Sauer stated that the nation faced "country-killing and not sustainable" crises and warned that invalidating the president's tariff powers could lead to "ruthless trade retaliation." The administration maintained that the power to raise revenue through tariffs was "only incidental" to their regulatory purpose. Former President Trump characterized the dispute as critical, stating an unfavorable ruling would restrict his ability in trade negotiations and pose a threat to national security.
The Supreme Court's Ruling
On Friday, the U.S. Supreme Court issued a 6-3 ruling, determining that the Trump administration had exceeded its authority by imposing tariffs under the International Emergency Economic Powers Act (IEEPA).
The majority opinion, authored by Chief Justice John Roberts, affirmed that the authority to enact tariffs during peacetime and levy taxes is constitutionally reserved for Congress. The court concluded that the IEEPA did not provide the legal justification for most of the administration’s tariffs.
Justices Neil Gorsuch and Amy Coney Barrett, both appointed by President Trump, joined Chief Justice Roberts and the court's three liberal justices (Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson) in the majority. Justices Clarence Thomas, Samuel Alito, and Brett Kavanaugh issued dissenting opinions, with Justice Kavanaugh's dissent spanning 63 pages. The ruling significantly limited the President's ability to unilaterally deploy tariffs.
Trump Administration's Response and New Tariff Implementation
Following the Supreme Court's decision, President Trump publicly expressed disappointment and criticized the justices who ruled against his position, accusing some of acting due to liberal partisanship or being "disloyal" and "unpatriotic." He praised the dissenting justices.
Despite the ruling, the administration affirmed its commitment to its trade policy direction.
U.S. Trade Representative Jamieson Greer stated that "The policy hasn't changed. The legal tools that implement that may change but the policy hasn't changed."
New Tariffs Under Section 122
Immediately after the ruling, President Trump announced new global tariffs. On Friday, a temporary 10% tariff on imports worldwide was imposed under Section 122 of the Trade Act of 1974. On Saturday, this rate was increased to 15%, the maximum allowed by Section 122. This section permits the president to impose tariffs up to 15% for 150 days to address urgent balance-of-payments concerns. The new tariffs were scheduled to take effect as early as February 24.
The administration specified exemptions for certain goods, including those from Canada and Mexico covered by a separate agreement, specific agricultural products like beef, tomatoes, and oranges, and critical minerals, metals, and energy products. The White House indicated that if the court ruled unfavorably, it would seek to impose levies through other legal mechanisms, such as Sections 201, 232, 301, and 338 of various trade acts. These alternative methods often require formal notices, investigations, and have time or size limitations, unlike the broad discretion claimed under IEEPA. The administration initiated formal trade practices investigations under Section 301.
Implications for Tariff Refunds
The Supreme Court's ruling created a pathway for companies to seek refunds for tariffs already collected under the invalidated IEEPA. Estimates of the total amount collected ranged from $130 billion to $180 billion. The Supreme Court's decision did not specify a refund mechanism, leading to anticipated complexities and potential prolonged litigation.
Court of International Trade's Role
The U.S. Court of International Trade has been designated as the forum for refund lawsuits. Senior Judge Richard Eaton of that court rejected a Justice Department request for a 90-day pause and subsequently ordered the government to provide refunds for all illegally collected tariffs, including interest, to "all importers of record." Judge Eaton also designated himself as the sole judge for future cases concerning refund requests and mandated U.S. Customs and Border Protection (CBP) to commence refunds immediately and provide an update.
CBP announced it is developing a system to process these refunds within 45 days, aiming to streamline the process and avoid individual lawsuits. The agency communicated to the Court of International Trade that its current computer infrastructure requires time to handle the influx of requests.
Who Receives Refunds?
Most refunds are expected to go to the "importer of record," typically large businesses like Costco, Walmart, and Target, rather than directly to consumers. Treasury Secretary Scott Bessent expressed skepticism that American consumers would receive direct refunds. Businesses that absorbed tariff costs or passed them to consumers face decisions on how to manage any refunds received. Some companies, including Costco and FedEx, had already filed lawsuits seeking refunds. A market for tariff refund claims emerged on Wall Street, with hedge funds offering to buy claims from importers at a discount.
Financial Impact
The estimated $166 billion to $175 billion in refunds, if fully disbursed, could increase the projected U.S. budget deficit and add to government debt. The Yale Budget Lab estimated that if tariffs are refunded, it would cost the government $1.2 trillion in revenue through 2035 and add 0.6 percentage points to the Federal Reserve Board's preferred inflation index.
Economic Impact and Future Trade Policy
The cessation of the IEEPA tariffs could contribute to easing inflationary pressures and modestly stimulate economic spending and growth. However, economists suggested that consumers are unlikely to experience significant price reductions at retail. This is due to the administration's intent to continue using tariffs under alternative authorities and the economic concept of "price stickiness." Analysts anticipated that overall tariff rates would remain comparable to pre-ruling levels, indicating continued consumer impact through higher store prices.
The Section 122 tariffs are temporary, limited to 150 days. The administration plans to transition to more permanent tariffs using other statutes, such as Section 301, which requires extensive investigations into specific country conduct and formal dispute-setting proceedings. This limits the president's discretion compared to IEEPA. Previous economic data indicated that U.S. importers bore almost the entirety of tariff costs, which were then absorbed by businesses or passed on to consumers. Tariffs have not demonstrably revitalized U.S. manufacturing, which experienced job losses in 2025.
International and Domestic Reactions
International reactions varied. China's commerce ministry called for Washington to lift tariffs and initiated a "comprehensive assessment." India postponed a trade delegation visit. The European Union paused the ratification of its trade deal with the U.S., seeking clarity on intentions regarding new tariffs. Countries like Japan and South Korea planned to maintain existing agreements. French President Emmanuel Macron and German Chancellor Friedrich Merz reacted positively to the ruling, noting the importance of checks on power and anticipating an easing of burdens on German companies.
Australian Trade Minister Don Farrell stated that his office was assessing the implications of the new U.S. tariffs and affirmed Australia's commitment to free and fair trade. U.S. trade officials indicated that Australia's tariff rate would remain at 10% for now, despite President Trump's announced 15% global rate. Existing trade deals, such as those with Malaysia, Cambodia, and Indonesia, which included negotiated tariff rates, were expected to be honored. Countries without prior trade deals, such as Brazil, might see their tariff rate temporarily drop from 40% to 15%.
Domestically, an ABC/Washington Post/Ipsos poll indicated that 64% of U.S. citizens disapproved of tariffs as an economic strategy. Senate Minority Leader Chuck Schumer described the ruling as a positive outcome for American consumers. Governor Gavin Newsom of California criticized the tariff policy, citing negative impacts on the economy. Some congressional Republicans have also expressed discomfort with the tariff policies.
Related Congressional Actions on Tariffs
Separately from the Supreme Court case, dozens of Republican members of the U.S. Congress have requested an investigation into Australian and New Zealand lamb imports. These members are advocating for increased tariffs on these products, citing concerns about foreign competition "undercutting and infiltrating the U.S. lamb market."
A bill was also introduced by Nevada Republican Mark Amodei, co-sponsored by Utah Republicans Celeste Maloy and Burgess Owens, proposing a 30% tariff on all lamb and sheep products, including wool, from Australia and New Zealand. If enacted, this tariff would be in addition to existing duties, potentially raising the total tariff to 40% when combined with the current 10% global tariff on Australian imports. These initiatives are being pursued through either new legislation or existing trade law provisions unaffected by the Supreme Court's ruling, such as Sections 201 and 202 of the U.S. Trade Act, which permit tariffs if imports cause or threaten substantial injury to a domestic industry. The Australian government has consistently advocated for open trade with the U.S., stating that tariffs imposed on Australia are unjustified.